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After the International Monetary Fund (IMF) warned against curbing spending restraints, public sector wage increases are set to stay below inflation until inflation is contained.
The Bank of England will also keep interest rates high to keep inflation in check, the governor said.
Ministers are under pressure to offer higher wages to doctors and teachers to end ongoing strikes sparked by substantial cuts in salaries amid double-digit inflation.
But a Treasury Department official told Jeremy Hunt that, given that one-fifth of all workers are employed by the government, high wages in the public sector could lead to wage inflation in the private sector, causing wage-price spirals. warned that there is still a risk of
The relationship between public and private sector wages is now higher than normal, the prime minister said, because unemployment is so low.
The UK is likely to see a bigger increase in public debt than other big countries as it “considered further increases in public wages and other social spending,” the IMF said in its biannual report. said in financial monitor.
The fund backed Hunt’s position by dismissing claims that higher wages for civil servants would have little impact on overall inflation. “The impact of government wage hikes on private sector wages and core CPI[consumer price inflation]is much greater and lasts longer when the labor market is tight,” he said.
The Treasury Department has previously estimated 5% as the rough tipping point at which public sector wage increases begin to accelerate inflation.
Striking junior doctors say they need to increase their workforce by 35% to make up for cuts they’ve received over the past 15 years. The government refuses to enter into negotiations with unions unless their demands have been waived in advance.
Bank of England Governor Andrew Bailey also spoke in Washington, warning against easing the fight against inflation despite the weakness in the financial sector, which is partly linked to rising interest rates. “What we are not doing and should not be doing is, in some ways, aiming away from the desired setting of monetary policy because of financial instability,” he said.
Rishi Sunak has promised to halve inflation by the end of this year. The Office of Budget Responsibility forecasts that he will drop to 2.9%, a target he is still above 2% but well below current levels.
But recent price data have been higher than expected, and Mr Hunt is concerned about signs that domestic factors, such as shortages of workers to fill vacant jobs, are stubbornly persisting. It is understood that
The Prime Minister is currently in the US for the IMF Spring Meetings, where he will meet with his G7 and G20 counterparts. Finance ministers are adjusting to restore financial stability and keep inflation in check without exacerbating the recession.